What Interim Dividends By TCS, Infosys And HCL Tech Mean

With the onset of the earnings season, India's top three information technology companies—Infosys Ltd., Tata Consultancy Services Ltd., and HCL Technologies Ltd.—have announced interim dividend payouts in October and November.

While Infosys announced an interim dividend--a payout before the annual general meeting and the release of final financial statements--of Rs 18 per share, HCL Technologies and Tata Consultancy Services have declared Rs 12 and Rs 9 per share payouts, respectively.

The record date—or the cutoff for holding shares to become eligible—for all three companies falls in October.

Among the three, Infosys is distributing the highest portion of free cash flows as dividends this year, at 61.51%. In the first half of the ongoing 2023–24 financial year, the company has allocated Rs 7,246 crore towards dividend payouts.

HCL Technologies follows by paying 25.89% of its total free cash flow during the first two quarters as a dividend.

Tata Consultancy Services made the smallest allocation at 5.67%. The company, however, rewarded shareholders with a Rs 17,000 crore buyback, consuming 75.91% of its total free cash flows in FY24.

As of Q2 FY24, HCL Technologies has the highest dividend payout ratio of 58.48%. Infosys and Tata Consultancy Services followed at 30.06% and 29.03%, respectively.

The ratio is a percentage of earnings paid to shareholders as cash dividends. A high ratio attracts income-seeking investors but may limit reinvestment into the business, while a low number signals a conservative dividend policy with more retained earnings for growth.

In FY23, TCS had the highest dividend payout ratio of 158.01%, while Infosys had the lowest at 58.37%. TCS' ratio has almost tripled since FY21, while HCL Tech and Infosys have seen a decline of 24% and 2%, respectively.

HCL Technologies also has the highest dividend yield, or a percentage of the stock price paid as a dividend, at 3.93% as of Q2 FY24. For Infosys and Tata Consultancy Services, this number stands at 2.48% and 1.42%, respectively.

A higher dividend yield can be an attractive feature for income-oriented investors, but it's not the only factor investors should consider.

When compared to FY23 levels, Infosys dividend yield is higher, while it's lower for TCS and HCL Tech.

Although TCS has a relatively lower dividend yield compared to the other two companies, it has shown a steady increase over the years. HCL Tech's number has also jumped in FY22 and FY23. For Infosys, it has remained steady since FY21.